office of the auditor general - oag.state.ri.usoag.ri.gov september 30, 2019 joint committee on...

Dennis E. Hoyle, CPA, Auditor General

Office of the Auditor General

General Assembly

State of Rhode Island and Providence Plantations

State Employees’ and Electing Teachers OPEB System

State Employees’ OPEB Cost-Sharing Plan

Schedules of Employer Allocations

Schedules of OPEB Amounts by Employer

June 30, 2018 Measurement Date

For Fiscal 2019 Employer Reporting

-i-

33 Broad Street Suite 201 Providence, RI 02903-4177

tel: 401.222.2435 fax: 401.222.2111

Office of the Auditor General State of Rhode Island and Providence Plantations - General Assembly Dennis E. Hoyle, CPA - Auditor General

oag.ri.gov

September 30, 2019

JOINT COMMITTEE ON LEGISLATIVE SERVICES: SPEAKER Nicholas A. Mattiello, Chairman Senator Dominick J. Ruggerio Senator Dennis L. Algiere Representative K. Joseph Shekarchi Representative Blake A. Filippi We have completed our audit of the Schedules of Employer Allocations and Schedules of OPEB Amounts by Employer for the State Employees’ OPEB Cost-Sharing Plan administered by the State Employees’ and Electing Teachers OPEB System of the State of Rhode Island for the fiscal year ended June 30, 2018. These Schedules will be used by employers participating in the State Employees’ OPEB Cost-Sharing Plan to meet their fiscal 2019 financial reporting responsibilities under generally accepted accounting principles – specifically the requirements of Governmental Accounting Standards Board Statement No. 75 – Accounting and Financial Reporting for OPEB. Other reports containing similar information for the Board of Education OPEB Cost-Sharing Plan will be issued under separate cover. Our report is contained herein as outlined in the Table of Contents.

Sincerely, Dennis E. Hoyle, CPA Auditor General

-ii-



Schedules of Employer Allocations

Schedules of OPEB Amounts by Employer


TABLE OF CONTENTS

PAGE I. INTRODUCTION 1 II. INDEPENDENT AUDITOR’S REPORT 2 III. Schedule A - SCHEDULE OF EMPLOYER ALLOCATIONS – STATE EMPLOYEES 4 IV. Schedule B - SCHEDULE OF OPEB AMOUNTS BY EMPLOYER - STATE EMPLOYEES 5

V. NOTES TO SCHEDULES OF EMPLOYER ALLOCATIONS AND OPEB AMOUNTS

BY EMPLOYER 10

1



Schedule of Employer Allocations

Schedule of OPEB Amounts by Employer


INTRODUCTION

The State Employees’ OPEB Cost-sharing Plan covers state employees and certain employees of quasi-public agencies. As a cost-sharing plan, separate valuations are not made for individual employers participating in the plan.

As a cost-sharing plan – the net OPEB liability is apportioned based on proportionate contributions – see

Schedule A. The measurement date is June 30, 2018 – the information included herein is intended for use in Fiscal

2019 financial reporting by employers participating in the State Employees’ OPEB Cost-sharing Plan. These include the State of Rhode Island and certain component units of the State of Rhode Island.

The net OPEB liability and other measures included herein have been developed consistent with the requirements of GASB Statement No. 75 – Accounting and Financial Reporting for OPEB. Such amounts are intended for accounting and financial reporting by governments which prepare their financial statements in accordance with generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board. These amounts may and will likely differ from amounts reported in actuarial valuations used to measure actuarially determined contribution amounts consistent with the plan’s adopted funding policies.

2

33 Broad Street Suite 201 Providence, RI 02903-4177

tel: 401.222.2435 fax: 401.222.2111

Office of the Auditor General State of Rhode Island and Providence Plantations - General Assembly Dennis E. Hoyle, CPA - Auditor General

oag.ri.gov

INDEPENDENT AUDITOR’S REPORT

JOINT COMMITTEE ON LEGISLATIVE SERVICES, GENERAL ASSEMBLY STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS: TRUSTEES OF THE STATE EMPLOYEES’ AND ELECTING TEACHERS OPEB SYSTEM:

Report on Schedules

We have audited the accompanying Schedule of Employer Allocations of the STATE EMPLOYEES’ OPEB

COST-SHARING PLAN (the Plan) as of and for the year ended June 30, 2018, and the related notes. We have also audited the total for all entities of the columns titled ending net OPEB liability, total deferred outflows of resources, total deferred inflows of resources, and total OPEB expense (specified column totals) included in the accompanying Schedule of OPEB Amounts by Employer as of and for the year ended June 30, 2018, and the related notes.

Management’s Responsibility for the Schedules

Management is responsible for the preparation and fair presentation of these schedules in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the schedules that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on the Schedule of Employer Allocations and the specified column totals included in the Schedules of OPEB Amounts by Employer based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the schedules of employer allocations and specified column totals included in the Schedule of OPEB Amounts by Employer are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

schedules of employer allocations and specified column totals included in the Schedule of OPEB Amounts by Employer. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the schedules of employer allocations and specified column totals included in the schedules of OPEB amounts by employer, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the schedules of employer allocations and specified column totals included in the Schedule of OPEB Amounts by Employer in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s

Office of the Auditor General

3

Joint Committee on Legislative Services, General Assembly Trustees of the State Employees’ and Electing Teachers OPEB System:

internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the schedules of employer allocations and specified column totals included in the Schedule of OPEB Amounts by Employer.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinions.

Opinions

In our opinion, the schedules referred to above present fairly, in all material respects, the employer allocations for State employees and ending net OPEB liability, total deferred outflows of resources, total deferred inflows of resources, and total OPEB expense for the total of all participating State employee entities for the State Employees’ Cost-Sharing Plan as of and for the year ended June 30, 2018, in accordance with accounting principles generally accepted in the United States of America.

Other Matter

We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial statements of the State Employees’ OPEB Plan within the State Employees’ and Electing Teachers OPEB System of the State of Rhode Island as of and for the year ended June 30, 2018, and our report thereon, dated September 27, 2019 expressed an unmodified opinion on those financial statements. Restriction on Use

Our report is intended solely for the information and use of the State Employees’ and Electing Teachers OPEB System’s management, the trustees of State Employees’ and Electing Teachers OPEB System, the System’s employers and their auditors and is not intended to be and should not be used by anyone other than these specified parties. Dennis E. Hoyle, CPA Auditor General September 27, 2019

Schedule A

State, proprietary fund, or component unit

Amount %State of Rhode Island 37,796,168$ 89.42626854%University of Rhode Island 2,312,135 5.47054414%Rhode Island College 800,336 1.89360631%Community College of Rhode Island 588,358 1.39206336%Lottery 321,667 0.76106868%Division of Higher Education Assistance 58,802 0.13912636%Narragansett Bay Commission 345,990 0.81861724%Rhode Island Commerce Corporation 5,716 0.01352414%Rhode Island Airport Corporation 36,002 0.08518124%

42,265,174$ 100.000000010%

See notes to schedules.

STATE EMPLOYEES' AND ELECTING TEACHERS OPEB SYSTEM STATE EMPLOYEES' OPEB COST SHARING PLAN

Schedule of Employer Allocations

Fiscal 2018 employer contribution

4

State Employees' and Electing Teachers OPEB SystemState Employees - Schedule of OPEB Amounts by Employer


Schedule B

Net OPEBLiability Total Ending

FY 2018 Proportionate Beginning of OPEB Net OPEBParticipating Employer Contributions Share Year Expense Liability

State of Rhode Island 37,796,168 89.42626854% 463,596,595$ 34,749,705$ 455,474,747$ University of Rhode Island 2,312,135 5.47054414% 29,240,408 2,005,197 27,863,116 Rhode Island College 800,336 1.89360631% 10,135,363 692,184 9,644,702 Community College of Rhode Island 588,358 1.39206336% 7,462,946 507,202 7,090,193 Lottery 321,667 0.76106868% 3,863,547 306,960 3,876,354 Division of Higher Education Assistance 58,802 0.13912636% 374,790 101,509 708,615 Narragansett Bay Commission 345,990 0.81861724% 4,265,419 315,143 4,169,461 Rhode Island Commerce Corporation 5,716 0.01352414% 67,762 5,577 68,885 Rhode Island Airport Corporation 36,002 0.08518124% 437,010 33,727 433,851

Total for All Employers 42,265,174$ 100.00000000% 519,443,840$ 38,717,204$ 509,329,924$

See notes to schedules. 5



Schedule B

Participating Employer

State of Rhode IslandUniversity of Rhode IslandRhode Island CollegeCommunity College of Rhode IslandLotteryDivision of Higher Education AssistanceNarragansett Bay CommissionRhode Island Commerce CorporationRhode Island Airport Corporation

Total for All Employers

Changes inProportion and

Net Difference DifferencesDifferences Between Between Employer

Between Projected Contributions and TotalExpected and Actual Proportionate Deferred

and Actual Changes of Investment Share of OutflowsExperience Assumptions Earnings Contributions of Resources

-$ 23,492,877$ -$ 800,356$ 24,293,233$ - 1,437,148 - - 1,437,148 - 497,463 - - 497,463 - 365,704 - - 365,704 - 199,938 - 77,879 277,817 - 36,550 - 301,781 338,331 - 215,056 - - 215,056 - 3,553 - 2,160 5,713 - 22,378 - 4,732 27,110

-$ 26,270,667$ -$ 1,186,908$ 27,457,575$

Collective Deferred Outflows for Plan as a WholeUnrecognized Current Year Deferred Outflow of Resources




Schedule B




Changes in Proportion and

Net Difference DifferencesDifferences Between Between Employer Total

Between Projected Contributions and Total DeferredExpected and Actual Proportionate Deferred (Inflows) and

and Actual Changes of Investment Share of Inflows Outflows ofExperience Assumptions Earnings Contributions of Resources Resources

22,984,751$ -$ 8,421,294$ -$ 31,406,045$ (7,112,812)$ 1,406,064 - 515,162 714,782 2,636,008 (1,198,860)

486,703 - 178,321 259,493 924,517 (427,054) 357,794 - 131,091 201,213 690,098 (324,394) 195,614 - 71,670 - 267,284 10,533

35,759 - 13,102 - 48,861 289,470 210,405 - 77,089 11,420 298,914 (83,858)

3,476 - 1,274 - 4,750 963 21,894 - 8,021 - 29,915 (2,805)

25,702,460$ -$ 9,417,024$ 1,186,908$ 36,306,392$ (8,848,817)$

Collective Deferred Inflows for Plan as a WholeUnrecognized Current Year Deferred Inflow of Resources




Schedule B




Recognition of Existing Deferred Outflows (Inflows) of Resources forFuture Years Ending June 30

2020 2021 2022 2023 2024 Thereafter

(2,166,941)$ (2,166,941)$ (2,166,939)$ (743,677)$ 294,199$ (162,513)$ (253,135) (253,135) (253,134) (166,068) (102,577) (170,811)

(89,528) (89,528) (89,528) (59,390) (37,413) (61,669) (67,465) (67,465) (67,465) (45,309) (29,153) (47,537)

(7,222) (7,222) (7,222) 4,891 13,723 13,586 44,075 44,075 44,075 46,289 47,904 63,051

(22,796) (22,796) (22,796) (9,767) (267) (5,436) (6) (6) (6) 209 366 405

(1,437) (1,437) (1,437) (82) 907 682

(2,564,454)$ (2,564,454)$ (2,564,452)$ (972,904)$ 187,690$ (370,243)$




Schedule B




1% Lower 1% Higher4.00% 5.00% 6.00% 1% Lower Baseline 1% Higher

534,885,130$ 455,474,747$ 389,428,891$ 375,390,340$ 455,474,747$ 555,388,465$ 32,720,951 27,863,116 23,822,841 22,964,050 27,863,116 33,975,217 11,326,222 9,644,702 8,246,178 7,948,911 9,644,702 11,760,381

8,326,343 7,090,193 6,062,084 5,843,551 7,090,193 8,645,510 4,552,182 3,876,354 3,314,265 3,194,789 3,876,354 4,726,677

832,159 708,615 605,863 584,022 708,615 864,058 4,896,392 4,169,461 3,564,871 3,436,361 4,169,461 5,084,081

80,895 68,885 58,896 56,773 68,885 83,996 509,492 433,851 370,941 357,569 433,851 529,021

598,129,766$ 509,329,924$ 435,474,830$ 419,776,366$ 509,329,924$ 621,057,406$

Health Care Trend Rate Sensitivity

Ending Net OPEB Liability Ending Net OPEB Liability

Discount Rate Sensitivity



NOTES TO THE SCHEDULES OF EMPLOYER ALLOCATIONS AND OPEB AMOUNTS BY EMPLOYER June 30, 2018 Measurement Date

10

1. Plan Description and Governance

The State Employees’ and Electing Teachers OPEB System of Rhode Island (the System) acts as a common investment and administrative agent for OPEB benefits to be provided through various defined benefit OPEB plans. The System is administered by the trustees of the System which was authorized, created and established as an independent OPEB board to hold and administer, in trust, the funds of the OPEB System. Each plan’s assets are accounted for separately and may be used only for the payment of benefits to the members of that plan, in accordance with the terms of that plan.

The State Employees’ Plan (the Plan) was established and placed under the management of the System for the purpose of providing OPEB benefits for employees of the State of Rhode Island under the provisions of chapters of the Rhode Island General Laws. The Plan covers most State employees other than certain personnel at the State colleges and university (principally faculty and administrative personnel). Membership in the plan is mandatory for all covered State employees. Certain employees of the Rhode Island Airport Corporation (hired before July 1, 1993), the Rhode Island Commerce Corporation (active contributing members and employees of the Department of Economic Development before October 31, 1995 who elected to continue membership) and, the Narragansett Bay Water Quality District Commission (members of a collective bargaining unit) are also covered and have the same benefits as State employees. 2. Schedules of Employer Allocations The Schedules of Employer Allocations reflect employer contributions recognized for the fiscal year ended June 30, 2018 consistent with contributions reflected within the Plan’s financial statements. These employer contribution amounts are the basis for allocating the OPEB amounts to each employer. The percentages included in the Schedule of Employer Allocations have been rounded to 8 decimal places. 3. Schedules of OPEB Amounts by Employer The Schedules of OPEB Amounts by Employer were prepared by the Plan’s actuary using amounts from (1) the Plan’s fiscal 2018 financial statements, (2) Required Supplementary Information Schedules prepared in accordance with the requirements of GASB Statement No. 74, and (3) certain data from the actuarial valuation of the Plan performed at June 30, 2017 rolled-forward to June 30, 2018. These schedules utilize the proportionate employer contribution schedules detailed in the Schedule of Employer Allocations to apportion each employer’s amounts for the cost-sharing plan. The allocation of OPEB expense also includes any changes in proportion between years which are reflected as deferred outflows/inflows and recognized over the remaining service lives of the members. The Schedules of OPEB Amounts by Employer include the sensitivity of the net OPEB liability to changes in the discount rate as well as the sensitivity of the net OPEB obligation to changes in the healthcare cost trend rate. The following presents the net OPEB liability of the employers calculated using the discount rate of 5.0 percent, as well as what the employers’ net OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current rate. Additionally, the following presents the net OPEB liability of the employers calculated using the baseline health care trend rate, as well as what the employers’ net OPEB liability would be if it were calculated using a healthcare trend rate that is 1-percentage-point lower or 1-percentage-point higher than the baseline rate.



11

3. Schedules of OPEB Amounts by Employer (continued)

Net OPEB Liability – Sensitivity Analyses

4. Relationship to the Plan Financial Statements The components associated with OPEB expense and deferred outflows and inflows of resources have been determined based on the net increase in fiduciary net position as reflected for the State Employees Plan in the System’s financial statements and consistent with the requirements of GASB Statements No. 74 and 75. 5. Summary of Significant Accounting Policies Basis of Accounting – The underlying information to prepare the allocation schedules is based on the System’s financial statements as of and for the year ended June 30, 2018. The financial statements of the System are prepared on the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when incurred. Employer Plan member contributions are recognized in the period in which the wages, subject to required contributions, are earned for the performance of duties for covered employment. Employer contributions to the Plan are recognized when due and the employer has made a formal commitment to provide the contributions.

Discount Rate Sensitivity

Current

1.00% Decrease Discount Rate 1.00% Increase

4.00% 5.00% 6.00%

State Employees' Plan 598,129,766$ 509,329,924$ 435,474,830$

Health Care Trend Rate Sensitivity

1.00% Lower Baseline 1.00% Higher

State Employees' Plan 419,776,366$ 509,329,924$ 621,057,406$



12

6. Net OPEB Liability

The components of the net OPEB liability of the employers participating in the State Employees’ OPEB Plan at June 30, 2018 were as follows:

7. Actuarial methods and assumptions The total OPEB liability was determined by actuarial valuations performed as of June 30, 2017 and rolled-forward to June 30, 2018 using the following actuarial assumptions, applied to all periods included in the measurement.

Actuarial Cost Method - Entry Age Normal - the Individual Entry Age Actuarial Cost methodology is used. Amortization Method - Level Percent of Payroll – Closed State Employees - Equivalent Single Remaining Amortization Period - 19 years at June 30, 2017 Investment Rate of Return - 5.00% Projected Salary Increases – state employees - 3.00% to 6.00% Mortality – state employees:

Male Employees: RP-2014 Combined Healthy for Males with Blue Collar adjustment, projected with MP 2016 ultimate rates. Female Employees: RP-2014 Combined Healthy for Females, projected with MP 2016 ultimate rates.

Inflation - 2.75%

Rates of separation from service range from 16% in the first year of employment to 0% after 25 years. State employee rates of retirement are based on pension eligibility. The health care trend rates used in the valuation ranged from 9.00% in fiscal 2018 and then decreasing annually to 3.5% in fiscal year 2031 and later.

State Employee

Fiscal Year Ended June 30, 2018 Plan

Total OPEB Liability 690,639,837$

Plan Fiduciary Net Position 181,309,913

Employers' Net OPEB Liability 509,329,924$

Plan Fiduciary Net Position as a

percentage of the total OPEB Liability 26.25%



13

7. Actuarial methods and assumptions (continued)

The long-term expected rate of return best-estimate on OPEB plan investments was determined by the actuary using a building-block method. The actuary started by calculating best-estimate future expected real rates of return (expected returns net of OPEB plan investment expense and inflation) for each major asset class, based on a collective summary of capital market expectations from 8 nationally recognized investment consulting firms. These return assumptions are then weighted by the target asset allocation percentage, factoring in correlation effects, to develop the overall long-term expected rate of return best-estimate on an arithmetic basis.

8. Discount rate

The discount rate used to measure the total OPEB liability of the State Employees’ OPEB Plan was 5.0 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from the employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the OPEB Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current Plan members. Therefore, the long-term expected rate of return on OPEB Plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability. 9. Deferred Outflows and Inflows of Resources Consistent with the requirements of GASB Statement No. 75, differences between expected and actual experience and changes in assumptions are recognized in OPEB expense using a systematic and rational method over a closed period equal to the average of the expected remaining service lives of all employees that are provided with OPEB benefits through the OPEB plan (active employees and inactive employees) determined as of the beginning of the measurement period. Differences between projected and actual earnings on OPEB plan investments are to be recognized in OPEB expense using a systematic and rational method over a closed five-year period. Projected earnings of the Plan reflect the Plan’s investment return assumption or discount rate of 5.0%. Changes in proportion between the June 30, 2017 and June 30, 2018 measurement dates are also recognized in OPEB expense using the expected remaining service lives of plan members. The average of the expected remaining service lives for purposes of recognizing the applicable deferred inflows/outflows of resources established in fiscal 2018 is 7.3342 years.

office of the auditor general - oag.state.ri.usoag.ri.gov september 30, 2019 joint committee on...

Documents